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The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	920,000		$	265,000		$	402,000		$	253,000
Variable manufacturing and selling expenses		469,000			114,000			199,000			156,000
Contribution margin		451,000			151,000			203,000			97,000
Fixed expenses:
Advertising, traceable		70,000			8,700			40,400			20,900
Depreciation of special equipment		43,500			20,100			7,800			15,600
Salaries of product-line managers		116,000			40,400			38,900			36,700
Allocated common fixed expenses*		184,000			53,000			80,400			50,600
Total fixed expenses		413,500			122,200			167,500			123,800
Net operating income (loss)	$	37,500		$	28,800		$	35,500		$	(26,800)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

For Part 3:

\begin{tabular}{|l|l|l|l|l|l|} \hline & \multicolumn{1}{|c|}{ Totals } & Dirt Bikes & Mountain Bikes & Racing Bikes \\ \hline & & & & & \\ \hline & & & & & \\ \hline Contribution margin (loss) & & & & & \\ \hline Traceable fixed expenses: & & & & & \\ \hline & & & & & \\ \hline & & & & \\ \hline & & & & \\ \hline Total traceable fixed expenses & & & & \\ \hline Product line segment margin (loss) & & & & \\ \hline & & & & \\ \hline & & & & & \\ \hline \end{tabular}

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